This may seem paradoxical, because everyone knows that innovation is what drives business success today, right? Well, sort of. While corporate leaders may intellectually accept the need for innovation and tout their commitment to innovation at every opportunity, they often fail to really “get” innovation. As a result, they become a major roadblock in the path to succeed as an innovation leader.
Here are some reasons why I believe CEOs and other C-level officers often don’t support innovation as much as they should and could, even though the business climate of our time demands that innovation be a core capability:
Top executives at public companies are under enormous pressure to produce strong financial results each and every quarter. This is the area where they are rewarded for producing results, and their job security increasingly depends on it, as shown by an annual study conducted by Booz Allen from 1995 to 2006. In tracking CEO turnover rates at the world’s 2,500 largest publicly traded companies, Booz Allen found that annual CEO turnover grew by 50 percent during that period, meaning CEOs are in greater peril overall. Equally interesting, a CEO who delivered below-average investor returns stayed in office as long as high performers in 1995, but by 2006, a CEO who delivered above-average returns was almost twice as likely as one delivering sub-par returns to remain CEO for more than seven years. Furthermore, in 2015, we saw the highest ever CEO turnover at the globe’s largest public companies with almost 17% as highlighted in this article.
There simply is no room in this equation for CEOs to put their necks on the line and support investments in innovation efforts that won’t produce near-term results, or may even have a negative impact on the bottom line for some period of time. Thus we find ourselves in a world where companies put too much focus on incremental innovation. In an ideal world, boards would demand that investments in innovation are made on a widely accepted norm of 80% incremental and 20% radical to assure the long-term health of the organization. But few organizations have metrics for measuring innovation, and boards don’t pay executives based on innovation objectives. Dynamic values such as entrepreneurship, creativity, and risk-taking are not measured, let alone valued at bonus time. This lead to an over emphasis on incremental innovation.
Although things are changing fast in these years of fast pace and disruption, most of the current leaders got to the top of the heap by being able to produce on the static financial metrics that are so beloved on Wall Street. Often, it is only when a crisis strikes and a company is in deep trouble—and not meeting those financial metrics— that many boards start demanding innovation, which, of course, can’t be cranked up overnight.
Many of today’s top executives got their business education before innovation was a significant part of the curriculum at many MBA programs. They could compensate for this with experience, but many also missed being trained on the job, because innovation training usually goes down through organizations, not upward. And when they gained most of their experience, innovation was even more underserved than today. They were trained to be problem solvers, not innovators.
In the early to mid-1990s, a major breakthrough on innovation education happened when thought leaders such as Clayton Christensen, Gary Hamel, C. K. Prahalad, and others started to drive attention to innovation. That’s when the top business schools began to give innovation a higher priority in their MBA programs. The people educated in these programs are now reaching the top executive level. I hope this will give us leaders who better understand how to develop an innovation strategy and stick to it—in good as well as in bad times.
A positive sign of change is that many capable – and often fairly young – innovation driven leaders who transfer to new companies have begun reaching the top executive level. I know of several people who have advanced to the top level when they transferred to companies in need of better innovation capabilities. They started as leaders of innovation, disruption or transformation projects, but they were quickly promoted when the CEO of the new company realized the potential of their mindset and skills. This change of guards will happen even faster in the coming years.
Innovation, especially open innovation, is scary on many levels. Unfortunately, many people who reached the top of their organization because of their knowledge of the existing business aren’t that interested in considering a new business model or going after an amazing, yet high-risk breakthrough innovation driven project when that may mean their expertise in the business might become obsolete. And who wants to risk having a major project fail on their watch?
People who truly understand innovation embrace failure as an inherent part of innovation. They realize that often big lessons that lead to success come from the biggest failures. An attitude that doesn’t allow for failure is contrary to an innovation culture, yet that’s the kind of attitude that too many company leaders possess.
Innovation done well requires the right people as well as the right processes. If there are no processes in place, this can lead to confusion and the feeling of having no control of things. And although many top executives should be trained to set up processes, they still need to make room for the unexpected and create an environment where they can deal with many uncertainties. You have to let go of some control, which can be a difficult thing for top executives who want to run a tight ship. Especially in an open innovation environment, being able to let go of some control so that you can create a win/win situation for your external partners becomes important.
Leaders and managers are often promoted because they excel within just one business function, such as R&D, sales, supply chain, or finance. They have difficulties seeing across functions and to combine several elements within a value chain and innovation process. They lack the X-vision—the ability to work across business functions and with many types of innovation to turn ideas into profitable products, services, or business methods—and they do not train their employees to have X-vision skills, either. X-vision is very much about mindset, and can be developed through training and coaching, as well as through job rotation programs.
In today’s world of innovation, which is more open than ever before, you need to be an expert at networking and building relationships. This holds true at the corporate level as well as the personal level. So I ask leaders and managers, where is your strategy, commitment, and the structure needed to create a networking culture? Many of them have not bothered to give this important subject any thought.
It is easy to preach innovation when you do not have to make it happen. I have been in several situations where innovation leaders have to struggle with middle managers who prefer to focus on their day-to-day business rather than support innovation efforts that might take away resources here and now but will contribute significantly to the overall business in the future.
The problem is that top executives reward middle managers for getting stuff done and executing flawlessly. This can be counter-intuitive to innovating. But top executives are often too far away from the action to understand how this compensation structure makes it harder for innovation leaders to succeed on their stated goals. This is why when you really need the support of the CEO in a fight for resources or in a battle of wills with another executive, you’ll often find that your CEO sides with the status quo. Most leaders are more wedded to rewarding the core business rather than pursuing something new and untested.
It is a major challenge for an innovation driven leader to operate in an environment where the top executives don’t get innovation or—perhaps even worse—do understand it but are unwilling to fully embrace it because it means going against the board of directors’ focus on short-term financial goals. What can you do to thrive in such an environment, especially if you’re trying to build something as complex as open innovation capabilities? Based on my experiences, here are some methods to apply:
Innovation is a holistic activity that needs to be understood and embraced by everyone from the top to the bottom. For this reason, your innovation training initiatives should include top executives. In addition to building their knowledge of how innovation actually works, this will also help create a common language around innovation, one of the factors that is important for helping innovation work.
I once did a presentation at a company where my audience was a fairly typical crowd—the R&D guys and a few innovation leaders. But there was one person who was not part of the usual suspects. It was a finance guy who asked good questions and was really engaged. It was not until the end of the presentation that I learned it was not just a finance guy; it was actually the CFO. The leader in charge of innovation who had recently joined the company was having success in trying to make all executives understand they had a role to play when it comes to innovation.
The corporate culture and its fit with innovation can generally be gauged by the number and type of people who attend internal innovation events. If the event has been publicized to the whole company and all business areas—not just to those who are supposed to care about innovation—you can simply look at the diversity of the participants. The more diverse the attendance—both in terms of business areas and in terms of people from all levels—the better the culture. So when you set up training efforts and work to create the common language, make sure you reach out to everyone, including senior executives.
This will help them commit personally, as they are all vested in the overall strategy. Create a roadmap for the executives that shows the path from the corporate strategy to the innovation strategy and then through the various elements of innovation you’re pursuing. Any time you’re doing a presentation, be sure to include this roadmap as a reminder of why you’re doing it .
Also in this context, you must understand the power of peer pressure, even at the executive level. Whenever possible, have major decisions made in a group setting. When leaders commit to providing resources and support in front of their peers, it’s easier to hold them accountable if they later try to renege on their commitments.
Is the CEO more focused on the bottom line (streamlining processes, cutting costs and such) or the top line (growing sales)? Make sure you initiate innovation projects in areas on which top executives are focused, and get support from key people who influence this preference. If you can find ways to get top executives personally committed to innovation efforts because those efforts match what really matters to them, you can make good long-term progress by getting even small wins in those areas. This can help you win the backing needed to move into other, bigger, innovation initiatives later. Even at the top executive level, there is a lot of “what’s in it for me?” thinking.
If you have to really educate your top executives on innovation, you should invest heavily in building strong working relationships with your corporate communications department. Make sure they understand what you’re doing and its importance to the company. They can help generate stories—both internally and externally–that create a perception that the company is making strides in innovation, while still keeping people aware that there is ample room to improve. This perception can help when you need to ask for resources and support.
Most leaders in charge of corporate innovation efforts are highly driven people who thrive on change and are capable of keeping many balls in the air at the same time. But remember that many leaders do not share these traits; they prefer for things not to change and aren’t interested in taking on anything new. Thus, while you’re tempted to start a flurry of initiatives, it is better to narrow your focus rather than going in many directions at once.
A cliché piece of advice, yes, but achieving some small successes can help convince top executives that you understand the need for the short-term results they value. This will build confidence in your overall program and give you credibility for going after larger innovation goals.
The one part of the system over which you have little influence is the board of directors. Since they choose the CEO and influence top executives through the CEO, as well as decide the basis for salary raises and bonuses, they have a huge impact on whether innovation gets the support it needs. Unfortunately, there is little you can do as the leader of corporate innovation efforts to influence the board.
Which brings us to a final word of advice: If you find yourself constantly hitting your head against the wall because of roadblocks thrown up by a leadership team that does not understand or support innovation, you need to ask yourself if you are in the right place. And you probably need to get out. In most situations, I would advise giving yourself a maximum of two years before giving up on being able to help senior executives become true supporters of innovation. If you really understand how innovation, disruption and digitalization works today and if you already have leadership experience, you will find a ton of interesting job opportunities in the coming years.
By Stefan Lindegaard
Stefan Lindegaard is a Copenhagen-based author, speaker and strategic advisor. His focus on corporate transformation and innovation management based on leadership, the work force and organizational structures has propelled him into being a trusted source of inspiration to many large corporations, government organizations and smaller companies. He believes business today requires an open and global perspective and he has given talks and worked with companies in Europe, North America, South America, the Middle East, Africa and Asia.
In his role as a strategic advisor and coach, Stefan Lindegaard provides external perspectives and practical advice for executives and corporate transformation and innovation teams. He is a widely respected writer and he has written several books including The Open Innovation Revolution published globally. You can follow his work on LinkedIn Pulse.